In January-April, sales of imported passenger cars accountedfor 12 percent of the market, a fifth more than last year and upfrom just 2 percent a decade ago. Hyundai/Kia sales were flat.

Now, the Koreans look like they're trying to push back theforeign tide. Foreign automakers and distributors say variousmoves by Korean lawmakers and government agencies aim to makelife tougher for them. Privately, some talk of "import bashing".

"Korea is a highly protected market. Despite recentagreements to open up its market, the government is not helping... it's actually doing its best to keep the barriers in place,"said a senior global automaker executive, who didn't want to benamed because of the sensitivity of the issue.

In March, South Korean lawmakers proposed a bill to reducecorporate tax breaks on cars priced above 50 million won($44,000) and bought as company cars - typically thosetop-of-the-range models from German, Japanese and U.S.automakers. More than half the cars imported cost more thanthat, and at least 40 percent are bought under corporateaccounts, industry data shows. For luxury marques such asBentley, Porsche and Rolls-Royce, over 70 percentare bought as company cars.

"It will deal a direct blow to sales of premium importedcars. It will depress consumer sentiment," said an executive atthe local unit of an imported luxury marque. "We're discussingmeasures to cope with the potential change, but we doubt whetherthere are real solutions."

Min Hong-chul, a lawmaker with the main oppositionDemocratic Party and one of those backing a revised tax policy,said the move was not intended to "regulate foreign cars, thoughit may end up doing so."

PRICING PROBE

In February, Korea's Fair Trade Commission (FTC) raided theoffices of the Korea Automobile Importers and DistributorsAssociation and of Volkswagen's Audi, BMW,Daimler's Mercedes-Benz and Toyota Motor's Lexus as part of a probe into possible price collusion,according to local media.

And this week, local media reported that BMW Korea was beinginvestigated by the tax authorities. A spokesman for the BMWunit confirmed an investigation, but declined to say more.

An official at the foreign car association refutedprice-fixing charges, saying this was impossible given there are400 or so foreign models involved. Toyota, BMW, Mercedes-Benzand Volkswagen confirmed their sales offices in Seoul wereraided, but declined to elaborate. FTC officials declined tocomment.

"HIDDEN OBSTACLES"

Hyundai and Kia have over 70 percent market share in SouthKorea, but that is being eroded by imports following free tradeagreements struck with the European Union in mid-2011 and withthe United States eight months later.

Hendrik von Kuenheim, head of BMW Group's Asia, Pacific andSouth Africa regions, welcomes the free trade deals, which willphase out tariffs on cars from Europe with engines bigger than1500 cc - from 8 percent two years ago to zero next year. In thelate-1980s, Seoul protected its autos industry with a 50 percentimport duty.

But von Kuenheim said there are still "hidden obstacles"when selling cars in South Korea, where nearly 1.6 millionvehicles were bought last year.

"Local authorities, be they in Germany, in Europe or inKorea, still need to work hard and overcome the latest and thesmallest annoying obstacles," he told Reuters on the sidelinesof a groundbreaking event for BMW's $62 million drivingeducation centre outside Seoul. "Let theintention of a free trade agreement prevail," he said, withoutelaborating on what these obstacles are.

BMW's South Korean sales rose 14 percent to 14,155 cars inJanuary-May, while Volkswagen increased its sales by 42 percentto 9,208 and Ford Motor sales jumped 50 percent to 2,712.Toyota and other Japanese automakers took advantage of the lowertariffs on U.S.-made cars, importing models like the Camrymidsize sedan from factories in the United States.

A spokeswoman for Hyundai Motor declined to commentspecifically on the issue, but a Hyundai dealer said he wasconcerned about the rising number of imported cars. "It'sincreasingly difficult to sell cars as consumers are turningtheir eyes to foreign makes," said the dealer, who works in theaffluent southern Seoul suburb of Pangyo.

To be sure, free trade deals work both ways - and SouthKorean automakers have grabbed market share in Europe from PSAPeugeot Citroen and others - prompting measures byFrance that could have led to duties being imposed. Eventually,the European Commission rejected France's request.